The European Banking Authority (EBA) published today a Report on small and medium enterprises (SMEs) which analyses (i) the evolution of lending trends and conditions for SMEs, (ii) the effective riskiness of EU SMEs over a full economic cycle and (iii) the consistency of own funds requirements laid down in the Capital Requirements Regulation (CRR) for credit risk on exposures to SMEs. Overall, the results of the EBA analysis show limited effectiveness of the SME Supporting Factor (SF). However, more data is needed before drawing firm conclusions and, therefore, the EBA recommends continued monitoring of the application of the SF.
The introduction of the so-called SME SF in the new regulatory framework, and the resulting capital reduction, was aimed at ensuring an adequate flow of credit and increased lending to SMEs. Against this backdrop, the EBA Report highlights that there is no sufficient evidence that the SME SF has provided additional stimulus for lending to SMEs compared the large corporates. Based on the empirical evidence available to the EBA, the SME SF has not led to increased lending at this stage.
Overall, the findings of the report rely on empirical evidence for a limited period of time and are in some cases based only on data from a few EU countries. Therefore, in the light of the limitations of the data available for the assessment, as well as the relatively recent introduction of the SME SF, a strong EU-wide conclusion cannot be reached at this stage and further work is needed.
As a consequence, the EBA Report recommends monitoring on a regular basis the effects of the SME Supporting Factor and reconsidering the issue at a later stage.
The EBA statement and the full report can be found here.